The Emerging African Middle Class

The Potential and Pitfalls

Six of the world’s fastest growing economies are African, and the IMF predicts that Africa will have the fastest growing economy of the world in the next five years. This explosive growth has resulted in a meteoric rise in the continent’s middle class. The burgeoning emergent class has been intrinsically linked to improved governance and political stability of most of the African economic development, increased levels in education and material aspirations. According to a report by the African Development Bank entitled The Middle of the Pyramid: Dynamics of the Middle Class in Africa, this middle class tripled to within sight of 350 million people in 2010 from approximately 126 million recorded in 1980. That’s approximately one third of the continent’s one billion population; a figure akin to that of China and India respectively.

Although there is no general consensus as to the definition of what encapsulates the middle class, the report defines it as being made up of people spending between US$2 and US$20 a day; a derisory amount by western standards, but appropriate for Africa when adjusted for its cost of living. The middle class sits squarely in the centre of the social spectrum. They are neither desperately poor nor abhorrently wealthy. However, the report cautions that those on the lower end of this class, that’s, spending between US$2 and US$4 a day can easily fall back into poverty at the slightest sight of unrest, putting this class in a precarious position with regards to continued growth. Africa’s middle class is made up of young, aspirational and highly educated individuals who reside in urban areas and either hold salaried jobs or own small businesses as this social class tends to be quite entrepreneurial and are technologically savvy. 70 % of the middle class are under the age of 40. They believe in investing in human capital and thus seek quality education, often opting for private education for their children as well as seeking out better health services. They also tend to have fewer children than previous generations. They may also receive subsistence from relatives in the Diaspora but more often than not, don’t receive income from agrarian activities. They are connected, being internet and mobile phone users. “Africa 2s”, as they are referred to by Vijay Mahajan, business professor at the University of Texas, Austin and author of the book, Africa Rising, lead lavish lifestyles, living in big houses equipped with contemporary amenities and driving equally modern vehicles in line with their lifestyles.

The boom of the middle class has been spurred on by a frenetic and almost obsessive rate of private consumption of goods and services. This is evidenced by the salient increase in the purchasing of goods such as mobile telephones, cars, refrigerators and television units in most African countries. Despite popular perceptions and rhetoric about commodities accounting for the bulk of the growth in the so-called “commodities boom”, it’s rampant consumerism that’s accounting for two thirds of Africa’s Gross Domestic Product (GDP) growth. This is according to Deloitte‘s, The Rise and Rise of the African Middle Class report, which specifies these services as being concentrated in financial services, telecommunications and retail. Population increase is also responsible for this surge in growth. Intuitively, a greater populace invokes an increase in the demand for goods and services and with it skyward profits.

For decades, Africa has been shrouded in a cloak of pessimistic myths and negative perceptions.

It’s estimated that half of the world’s population increase in the next 40 years will be in Africa. With Africa having an inordinately young population and with more and more of these young people being well educated, growth is something that should be sustainable for the next several years due to the insured consumer base. This is however contingent upon unemployment, the biggest threat to the growth of the consumer class, being effectively addressed. The proliferation of the population on the continent will most likely exacerbate the scourge of unemployment, which is currently pegged between 40 % and 50 % for most sub-Saharan countries. A flourishing private sector also supports a strong middle class as it provides opportunities, which are then harnessed by local entrepreneurs. Increased investment in infrastructure leads to growth in the size of the middle class. According to the report, “Countries with much more developed infrastructure tend to have larger middle class populations. This could be largely due to the fact that such countries have a more competitive economic environment that attracts investment and helps to create more stable employment and income-generating opportunities taken up by the middle class.”

Africans living in the Diaspora who are a source of investment capital have also supported the growth of the middle class. It’s estimated that about US$36 billion per annum is sent home to African countries and this figure could actually be in the region of US$61 billion if unrecorded transfers are taken into consideration. Another factor which supports a strong middle class is increased education. This ultimately leads to a generation of well-paying jobs, which are then taken up by the middle class. Another pertinent supporter of growth of this class is access to Information and Communication Technology (ICT). This is because ICT combined with mobile phone usage is linked to innovation and connectivity; both essential tools in the promotion of business opportunities. Summed up, a pioneering Deloitte study found that, “a 10 % increase in mobile phone penetration is linked to an increase in a middle/low income country GDP of 1.2 % due to the ensuing economic activity that people engage in as a result of being ‘plugged in’ and connected. Internet access is both an indicator of socio economic well-being as well as a predictor of participation in the mainstream economy. ICT access is increasingly being seen not as a luxury but as a very necessary tool for development.”

The middle class are in the acquisition stage of their lives making them rampant spenders. McKinsey Global Institute estimates that spending in Africa will reach US$1.4 billion by the year 2020 from US$860 million recorded in 2008. The World Economic forum on Africa, held in Addis Ababa earlier this year, highlighted some of the potential dangers associated with this upsurge in purchasing power. Chief among these is the promulgation and promotion of a self-serving or consumerist culture identifiable by increased indebtedness, excessive spending and scanty savings as is already being experienced by some African nations, particularly South Africa. This debt driven consumerism can quickly spiral into a depressed economy that could take years to recover as well stunt growth in the long term. This potential situation has resulted in the Consumer Protection Act being enacted in order to mitigate these risks. However it was suggested that an increase in affluence results in a more vested interest in family welfare, particularly in the future of later generations and this was likely to act as an “internal barometer” that would serve to moderate behaviour. Another noxious side effect of this buying power that was identified was that of a loss in “values” as the consumer class is known for its “selfish” and single-minded pursuit for only that which is beneficial to them. It was also however put forward that the education levels of this group have a behaviour modulating quality that inadvertently instils a laudable and progressive value system.

Although Africa’s growth has seen buoyancy in its middle class, two things are apparent. Firstly, that poverty remains a scourge on the continent with 61 % of its population living below the poverty line of US$2 spending per day. This is because the experienced growth has not necessarily been distributed fairly across the classes. Instead, the rift of income inequality between the rich and the poor has seemingly widened even more because of it. Secondly, that despite inferences to the idea of the middle class promoting democracy, this has not necessarily always been the case as is evidenced by Angola and Ethiopia, two of the most successful economies in Africa who are ruled by autocratic regimes. However when harnessed properly, the potential within this consumer class can be used to bring about change and be a real economic and political force that will bridge the divide between the rich and the poor. Its potential for political power has already been demonstrated during the uprisings in the North African countries of Egypt, Tunisia and Algeria.

Although the middle class may not be the majority, they certainly have the potential to form a powerful and influential political minority as some have pointed out; they are collectively wealthier than the elite and more numerous than the poor. The interests of this class correspond with those of the poor and can only serve to uplift the marginalized majority and reduce poverty. The Globe and Mail refers to this class as the catalyst class as it’s ideally positioned as agitators of change for several reasons. To begin with, it’s critical and discerning of governance issues due to being educated and having a vested interest in the way the country is run as it’s aware of what is at stake and what it stands to gain or lose especially as it pays more taxes. As small business owners it’s able to generate employment opportunities in order to address the very real threat of unemployment, which can instigate political instability. The middle class represents a better-educated electorate, which exacts inclusivity in the direction it would like the economy to go. It thus demands accountability and transparency in matters regarding public service levels, public finance and human rights issues thereby effectively weeding out gross maladministration, corruption and manipulation. It also demands open and fair trading conditions and easily accessible employment opportunities, which are untainted by corruption dubbing this class, the “guardians of democracy”. The trickle-down effect of growth puts disposable income in the middle class’s pockets, which can be used for the greater good if invested in domestic markets. In order to effectively harness this power, the middle classes would need to realize their collective power as illustrated here and step away from the sidelines where they have grown used to playing commentator without actively engaging in the process. The future of Africa rests in the hands of this class as it has the transformative power of uplifting the poor from below poverty demarcations and spurring Africa on to new heights of economic emancipation and self-empowerment. The future certainly looks bright for Africa’s middle class.